Legal Updates

Commercial Property: Proper Construction of Leases

The case of Littman v Aspen Oil (Broking) Ltd [2005], demonstrates the potential effects of improper drafting of commercial leases. The claimants were the landlords of premises, part of which were let to the defendant tenant for a term of five years. The lease contained a break clause to terminate the lease which stated : '... provided that up to the determination date in the case of a notice given by the Landlord the Tenant shall have paid the rents hereby reserved and shall have duly observed and performed the covenants on the part of the tenant and the conditions herein contained this lease shall absolutely cease ... '.

In other words, the break clause was expressed to be subject to a proviso that if the Landlord gave notice, it would have been effective only if the Tenant complied with the obligations in the lease. The proviso did not apply where the tenant gave notice to the landlord. This meant that the Tenant could have frustrated the landlord's attempts to break the lease by breaching his obligations.

The Court held that:

• the break clause as it stood was an absurdity;
• there was no rhyme or reason in making the exercise by the Landlord of his right to terminate conditional on the performance by the tenant of his obligations under the lease;
• no commercial purpose in such a provision could be imagined;
• although there was nothing grammatically or syntactically wrong with the formulation, it was obvious that something had gone wrong with the clause.

Comment: This case confirms that a lease should be correctly drafted and make commercial sense.

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© RT COOPERS, 2005. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.